SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended March 31, 2001
Commission file number 0-10822
BICO, INC.
(Exact name of registrant as specified in its charter)
Pennsylvania 25-1229323
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification no.)
2275 Swallow Hill Road, Bldg. 2500, Pittsburgh, PA 15220
(Address of principal executive offices) (Zip Code)
(412) 429-0673
Registrant's telephone number, including area code
Indicate by check mark whether the registrant (1) has
filed all reports required to be filed by section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
As of March 31, 2001, 1,383,704,167 shares of BICO, Inc.
common stock, par value $.10 were outstanding.
1
BICO, Inc. and Subsidiaries
Consolidated Balance Sheets
Mar. 31, 2001 Dec. 31, 2000
(Unaudited) (Note A)
------------- -------------
CURRENT ASSETS
Cash and equivalents $ 5,453,362 $ 7,844,807
Accounts receivable - net of allowance for doubtful accounts
of $43,664 at Mar. 31, 2001 and Dec. 31, 2000 406,527 400,950
Inventory - net of valuation allowance 954,584 805,224
Related party notes receivable 58,940 87,706
Notes receivable 3,018,166 1,926,363
Interest receivable 96,530 48,252
Prepaid expenses 986,566 988,354
Other current assets 47,268 47,268
------------ -------------
TOTAL CURRENT ASSETS 11,021,943 12,148,924
PROPERTY, PLANT AND EQUIPMENT
Building 2,529,176 2,529,176
Land 246,250 246,250
Leasehold improvements 1,931,395 1,848,674
Machinery and equipment 6,598,789 6,405,594
Furniture, fixtures & equipment 930,537 921,195
------------- -------------
Subtotal 12,236,147 11,950,889
Less accumulated depreciation 5,492,828 5,288,910
------------- -------------
6,743,319 6,661,979
OTHER ASSETS
Related Party Receivables
Notes receivable 1,147,871 1,174,738
Interest receivable 8,604 13,463
-------------- ------------
1,156,475 1,188,201
Allowance for related party receivables (1,156,475) (1,188,201)
------------- ------------
- -
Notes receivable 190,806 200,000
Goodwill, net of amortization 684,032 694,895
Investment in unconsolidated subsidiaries 2,612,099 2,061,439
Other assets 161,638 162,833
------------- -------------
3,648,575 3,119,167
------------- -------------
TOTAL ASSETS $ 21,413,837 $ 21,930,070
============= =============
The accompanying notes are an integral part of these statements.
2
BICO, Inc. and Subsidiaries
Consolidated Balance Sheets
(Continued)
Mar. 31, 2001 Dec. 31, 2000
(Unaudited) (Note A)
------------- -------------
CURRENT LIABILITIES
Accounts payable $ 445,959 $ 578,520
Current portion of long-term debt 4,623,577 5,182,783
Current portion of capital lease obligations 91,583 98,788
Debentures payable 10,655,659 2,400,000
Accrued liabilities 3,437,591 3,131,765
Escrow payable 2,700 2,700
------------- -------------
TOTAL CURRENT LIABILITIES 19,257,069 11,394,556
LONG-TERM LIABILITIES
Capital lease obligations 2,181,826 2,203,673
Long - term debt 3,343 7,864
------------- -------------
2,185,169 2,211,537
UNRELATED INVESTORS' INTEREST
IN SUBSIDIARY 404,940 434,990
STOCKHOLDERS' EQUITY
Common stock, par value $.10 per share,
authorized 1,700,000,000 shares, issued and
outstanding 1,383,704,167 at Mar. 31, 2001 and
Dec. 31, 2000 138,370,417 138,370,417
Additional paid-in capital 89,094,066 87,035,096
Warrants 6,221,649 6,204,235
Accumulated deficit (234,119,473) (223,720,761)
------------- -------------
TOTAL STOCKHOLDERS' EQUITY (433,341) 7,888,987
TOTAL LIABILITIES AND ------------- -------------
STOCKHOLDER' EQUITY $ 21,413,837 $ 21,930,070
============= =============
The accompanying notes are an integral part of these statements.
F-3
BICO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
For the three months ended March 31,
2001 2000
(Unaudited) (Unaudited)
---------- -----------
Revenues
Net Sales $ 599,007 $ 18,998
Other income 7,418 -
---------- -----------
606,425 18,998
Costs and expenses
Cost of products sold 424,092 30,660
Research and development 1,285,222 2,150,323
General and administrative 6,238,852 3,203,967
Amortization of goodwill 182,715 77,207
---------- -----------
8,130,881 5,462,157
---------- -----------
Loss from operations (7,524,456) (5,443,159)
Other income
Interest 124,600 164,318
Other expense
Debt issue costs 679,174 985,000
Beneficial convertible debt feature 2,063,915 2,462,500
Interest expense 229,194 151,757
Loss on unconsolidated subsidiaries 72,192 8,750
Loss on disposal of assets 18,311 15,874
---------- -----------
3,062,786 3,623,881
---------- -----------
Loss before unrelated
investors' interest (10,462,642) (8,902,722)
Unrelated investors' interest in
net loss of subsidiary 63,930 (228,824)
---------- -----------
Net loss $(10,398,712) $(9,131,546)
========== ===========
Loss per common share - Basic:
Net Loss $ (0.01) $ (0.01)
Less: Preferred stock dividends (0.00) (0.00)
---------- -----------
Net loss attributable to
common stockholders $ (0.01) $ (0.01)
========== ===========
Loss per common share - Diluted:
Net Loss $ (0.01) $ (0.01)
Less: Preferred stock dividends (0.00) (0.00)
---------- -----------
Net loss attributable to
common stockholders $ (0.01) $ (0.01)
========== ===========
The accompanying notes are an integral part of these statements.
4
BICO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the three months ended
March 31, 2001 March 31, 2000
-------------- --------------
Cash flows used by operating activities:
Net loss $(10,398,712) $( 9,131,546)
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation 228,528 157,056
Amortization 182,715 77,207
Loss on disposal of assets 18,311 15,874
Loss on unconsolidated subsidiaries 72,192 8,750
Unrelated investors' interest in subsidiaries (63,934) 228,824
Beneficial convertible debt feature 2,063,915 2,462,500
Warrants granted 17,414 190,298
Warrants and warrant extensions by subsidiaries 0 281,493
Allowance for related party note receivable (31,726) (11,162)
(Increase) decrease in accounts receivable (5,577) (15,497)
(Increase) decrease in inventories (299,360) 821,880
Increase (decrease) in inventory
valuation allowance 150,000 (814,373)
(Increase) decrease in prepaid expenses 1,788 (79,195)
(Increase) decrease in other assets (10,622) (500,250)
Increase (decrease) in accounts payable (132,561) 4,948
Increase (decrease) in other liabilities 305,826 (484,714)
------------ ------------
Net cash flow used by operating activities (7,901,803) (6,787,907)
------------ ------------
Cash flows from investing activities:
Purchase of property, plant and equipment (328,179) (242,401)
(Increase) decrease in notes receivable (1,082,609) (55,000)
Payments received on notes receivable 55,633 35,285
(Increase) decrease in interest receivable (43,419) 1,690
Acquisition of unconsolidated subsidiary
interests (753,948) (1,223,784)
-------------- ------------
Net cash provided (used) by
investing activities (2,152,522) (1,484,210)
-------------- ------------
Cash flows from financing activities:
Proceeds from warrants exercised 0 899,420
Proceeds from sale of Preferred stock-Series F 0 4,275,000
Proceeds from debentures payable 8,255,659 9,850,000
Payments on notes payable (563,727) (37,906)
Payments on capital lease obligations (29,052) (20,334)
-------------- ------------
Net cash provided by financing activities 7,662,880 14,966,180
-------------- ------------
Net increase (decrease) in cash (2,391,445) 6,694,063
Cash and cash equivalents, beginning of year 7,844,807 10,827,631
------------- -----------
Cash and cash equivalents, end of year $ 5,453,362 $17,521,694
============== ============
The accompanying notes are an integral part of these statements.
BICO, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE A - Basis of Presentation
The accompanying consolidated financial statements of BICO,
Inc. (the "Company") and its 89.9% owned subsidiary, Coraflex,
Inc., and its 52% owned subsidiary, Diasense, Inc., and its
75% owned subsidiary, Petrol Rem, Inc., and its 99.1% owned
subsidiary, ViaCirQ, Inc., and its 58.4% owned subsidiary,
ICTI, Inc., and its 100% owned subsidiary, Ceramic Coatings
Technologies, Inc., and its 51% owned subsidiary, B-A-
Champ.com, Inc., have been prepared in accordance with
generally accepted accounting principles for interim financial
information, and with the instructions to Form 10-Q and Rule
10-O Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted
accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting of
normal recurring accruals) considered necessary for a fair
presentation have been included. For further information,
refer to the consolidated financial statements and footnotes
included in the Company's annual report on Form 10-K for the
year ended December 31, 2000.
NOTE B - Notes Receivable
During the three months ended March 31, 2001, Petrol Rem, Inc.
(a 75% owned subsidiary) loaned an additional $1,091,803 to a
company involved in the acquisition and management of
environmental entities. The loan, which bears interest at a
rate of 10% per annum is due on August 31, 2001, and is
collateralized by a security interest and lien on all of the
company's assets including its rights to any and all
contracts, options or claims of that company to purchase or
acquire the assets of any environmental company.
NOTE C - Investments in Unconsolidated Subsidiaries
In 2000, the Company acquired a twenty-five percent (25%)
interest in Insight Data Link.com, Inc. for $100,000. The
Company made no additional investments in Insight Data
Link.com, Inc. in the three months ended March 31, 2001.
Insight is a Pennsylvania corporation formed to engage in the
business of acting as an internet clearinghouse for persons
seeking to acquire, and persons having available, shopping
mall space, as well as software development for related
projects.
During the three months ended March 31, 2001 the Company
invested an additional $110,000 in American Inter-Metallics,
Inc. ("AIM") an unconsolidated subsidiary interest initially
acquired during 1999. With this additional investment, the
Company has invested $920,000 in AIM and its ownership is
approximately 18.4%. Upon completion of funding, the
Company's ownership will increase to 20%. AIM has its
operations in Rhode Island, and is developing a product that
enhances performance in rockets and other machinery by
increasing the burn rate of propellants.
During the three months ended March 31, 2001, Diasense
invested an additional $350,000 in MicroIslet, Inc., an
unconsolidated subsidiary interest initially acquired during
2000. With this additional investment, Diasense has invested
$1,350,000 in MicroIslet and its ownership is approximately
18.5%. Diasense has an option to purchase an additional 1.5%
interest in MicroIslet and holds a seat on the board of
directors of this unconsolidated subsidiary. MicroIslet is a
California company, which has licensed several diabetes
research technologies from Duke University with a specific
focus on optimizing microencapsulated islets for
transplantation.
During the three months ended March 31, 2001, Diasense
invested an additional $293,948 in Diabecore Medical, Inc., an
unconsolidated subsidiary interest initially acquired during
2000. With this additional investment, Diasense has invested
$987,472 in Diabecore and owns approximately 28.2% of this
unconsolidated subsidiary. Diasense also owns warrants to
purchase additional shares of Diabecore, which, if exercised,
will increase the company's ownership to 35%. Diasense holds
a seat on the board of directors of Diabecore. Diabecore is a
Toronto-based company working to develop a new insulin for the
treatment of diabetes.
These investments are being reported on the equity basis and
differences between the investment and the underlying net
assets of the unconsolidated subsidiaries are being amortized
as goodwill over a 5-year period. The company's investment in
the underlying assets and the unamortized goodwill of each
unconsolidated subsidiary as of March 31, 2001 and December
31, 2000 are as follows:
Investment
Unconsolidated in Unamortized
Subsidiary Underlying Goodwill Total
Net Assets
Mar.31, Dec. 31, Mar.31, Dec. 31, Mar.31, Dec. 31,
2001 2000 2001 2000 2001 2000
American Inter-
Metallics, Inc. $273,446 $222,912 $ 466,967 $ 441,004 $ 740,413 $ 663,916
Insight Data 27,003 28,503 49,262 52,546 76,265 81,049
Link.com
MicroIslet,Inc. 78,992 50,731 908,472 688,508 987,464 739,239
Diabecore 129,148 50,615 678,809 526,620 807,957 577,235
------- ------- ------- ------- ------- -------
Total $508,589 $352,761 $2,103,510 $1,708,678 $2,612,099 $2,061,439
NOTE D- Subordinated Convertible Debentures
During the first quarter of 2001 the Company issued
subordinated 4% convertible debentures totaling $8,255,659.
Such convertible debentures were issued pursuant to Regulation
D, and /or Section 4(2), and have a one-year maturity and are
not saleable or convertible for a minimum of 90 days from
issuance. A $2,063,915 expense was recognized upon issuance
for the beneficial conversion feature of these debentures.
NOTE E - Legal Proceedings
During April 1998, the Company and its affiliates were served
with subpoenas by the U.S. Attorneys' office for the U.S.
District Court for the Western District of Pennsylvania. The
subpoenas requested certain corporate, financial and
scientific documents and the Company continues to provide
documents in response to such requests.
On April 30, 1996, a class action lawsuit was filed against
the Company, Diasense, Inc., and individual officers and
directors. The suit, captioned Walsingham v. Biocontrol
Technology,et al., was certified as a class action in the U.S.
District Court for the Western District of Pennsylvania. The
suit alleged misleading disclosures in connection with the
Noninvasive Glucose Sensor and other related activities, which
the company denies. Without agreeing to the alleged charges
or acknowledging any liability or wrongdoing, the company
agreed to settle the lawsuit for a total amount of $3,450,000.
As of March 31, 2001, $2,150,000 has been paid toward the
settlement. An additional $1,300,000 is included in accrued
liabilities and will be paid in July 2001. Although it is not
known whether the class action plaintiffs have been formally
notified of the settlement, or if they have accepted its
terms, the company believes that the existing settlement will
end this matter.
NOTE F - Subsequent Events
In April 2001, the Company made an additional investment of
$80,000 in American Inter-Metallics, Inc. This additional
investment increased the Company's ownership percentage to
20%.
In May 2001, the Company's subsidiary, Diasense, made an
additional investment of $150,000 in MicroIslet, Inc. This
addition investment increased Diasense's ownership percentage
to 20%.
In April 2001, the Company registered 284,217,673 shares of
common stock on Form S-1 on behalf of the selling
shareholders. These shares are issuable upon conversion of
$10,655,659 of 4% subordinated convertible debentures.
Through May 10, 2001, 104,413,700 shares of common stock were
issued when $4,256,706 of these debentures were converted.
Management's Discussion and Analysis of Financial Condition
and Cash Flows
Liquidity and Capital Resources
Our cash decreased to $5,453,362 as of March 31, 2001 from
$7,844,807 as of December 31, 2000 primarily due to the
factors discussed below.
During the three months ended March 31, 2001 our net cash flow
used by operating activities was ($7,901,803). During the
same period, our net cash flow used by investing activities
was ($2,152,522) due primarily to the acquisition of property,
plant and equipment, additional loans made to a company
involved in the acquisition and management of environmental
entities, and additional investments in unconsolidated
subsidiaries which we discuss in the following three
paragraphs.
During the first three months of 2001, we made additional
investments in unconsolidated subsidiaries. BICO invested an
additional $110,000 in American Inter-Metallics, bringing our
total investment in AIM's rocket propulsion project to
$920,000. We increased our investment in AIM because our
management believes this company will generate revenue.
Our subsidiary, Diasense, Inc. also made investments in
unconsolidated subsidiaries during the first quarter of 2001.
An additional $350,000 was invested in MicroIslet, Inc., a
company working with Duke University on several diabetes
research technologies that focus on optimizing
microencapsulated islets for transplantation. The project is
in the research and development phase. As of March 31, 2001,
Diasense had invested $1,350,000 in MicroIslet and owned
approximately 18.5% of this company. The company has an
option to increase its ownership to 20%. Diasense also
increased its investment in Diabecore Medical, Inc. Diabecore
is a company in Toronto working with other research
institutions to develop a new insulin to treat diabetes. In
the first quarter of 2001, Diasense invested $293,948 in
Diabecore increasing the total amount invested to $987,472 and
its ownership in this company to approximately 28.2%. This
project is also in the research and development phase.
Diasense increased these investments because management
believes that these diabetes research organizations and the
institutions they affiliate with will bring strength and
support to our own diabetes research and development projects.
As a result of those additional investments in American Inter-
Metallics, MicroIslet and Diabecore Medical, our overall
investment in unconsolidated subsidiaries increased from
$2,061,439 as of December 31, 2000 to $2,612,099 at March 31,
2001. The money we spent investing in these companies came
from stock and debenture sales during 2000 and 2001.
Acquisitions of property, plant and equipment included
increases of machinery and equipment of $193,195 for the
quarter March 31, 2001 primarily due to additions of
hyperthermia equipment for our ViaCirQ subsidiary. Leasehold
improvements increased by $82,721 primarily due to
renovations made to the Indiana, PA facility.
Current - short-term - notes receivable increased during the
three months ended March 31, 2001 when our subsidiary, Petrol
Rem, advanced an additional $1,091,803 to Practical
Environmental Solutions, an unaffiliated company involved in
the acquisition and management of environmental companies.
Interest receivable increased from $48,252 as of December 31,
2000 to $96,530 at March 31, 2001 due to additional interest
accrued on notes receivable.
Our net inventory increased from $805,224 as of December 31,
2000 to $954,584 as of March 31, 2001. The increase was due
to an inventory build-up for the ThermoChem hyperthermia
products and our noninvasive glucose sensor product.
Current related party receivables decreased by $28,766 during
the three-month period ended March 31, 2001 due to scheduled
repayments on related party notes.
Accounts payable decreased by $132,561 during the quarter
ended March 31, 2001 due to additional payments in the
ordinary course of business. Accrued liabilities increased by
$305,826 during the same period due to accrued interest on
notes payable and debentures and increased liabilities for
accrued payroll and vacation.
Debentures payable of $8,255,659 were recorded during the
three months ended March 31, 2001 because we sold convertible
subordinated debentures during the first quarter to raise
capital to fund operations.
Results of Operations
Our sales and corresponding costs of products sold during the
three months were $599,007 and $424,092 respectively in 2001
compared to $18,998 and $30,660 in 2000. The increase in
sales was primarily due to sales of $516,089 for Petrol Rem's
subsidiary, Intco, which was acquired in the fourth quarter of
2000 and therefore not included in the first three months of
2000 operations. In addition, we recognized sales of $48,838
from our hyperthermia products and $21,776 from our metal
coating products, neither of which produced sales in the first
quarter of 2000. The increase in sales of metal coating
products was due to repeat customers who sent us more work
once they were satisfied with our earlier performance. Until
we have significant sales, we can't predict any trends for
future revenues. Our costs increased due to the increase in
sales of our various products. Our other product sales
decreased in total, but not significantly. Bioremediation
product sales totaled $16,024 during the first three months of
2000, with a decrease to $4,089 during the first three months
of 2001. This decrease is primarily due to the timing of
orders being placed. During the first three months of 2000
and 2001, sales of $5,450 and $8,225, respectively, were from
sales of our theraPORT, an implantable device used by patients
who have to have repeated injections of drugs. The theraPORT
is implanted in the patient's chest, and provides a fixed port
for catheters used to deliver the drugs the patient needs.
Other income increased from zero during the first three months
of 2000 to $7,418 during the first three months of 2001. The
increase was primarily due to rental income.
Interest income decreased during the first three months to
$124,600 in 2001 from $164,318 in 2000. The decrease occurred
because we had less funds to invest.
Research and Development expenses during the first three
months decreased to $1,285,222 in 2001 from $2,150,323 in
2000. The decrease was due to reduced research activities on
our hyperthermia products and the redeployment of resources
from research activities to production of the hyperthermia
products.
General and Administrative expenses during the first three
months increased from $4,188,967 in 2000 to $6,238,852 in
2001. The increase is primarily due to increases in
salaries, professional services and travel expenses as well as
$912,727 paid under an agreement with David L. Purdy in
connection with his resignation from the Company and its
affiliates.
Amortization of goodwill increased from $77,207 to $182,715
for the first three months of 2000 to 2001. The increase is
due to additional investments in unconsolidated subsidiaries
as of March 31, 2001 compared with March 31, 2000. A portion
of these investments is recognized as goodwill and amortized
over a five-year period. Our loss in unconsolidated
subsidiaries increased to $72,192 for the first quarter of
2001 compared to $8,750 for the same period in 2000 due to the
increased investments in unconsolidated subsidiaries. This
loss resulted because we absorbed part of losses incurred by
unconsolidated subsidiaries. Our share of the loss is
determined by applying our ownership percentage to the total
loss incurred.
Beneficial conversion terms included in our convertible
debentures are recognized as expense and credited to
additional paid in capital at the time the associated
debentures are issued. We recognized $2,063,915 of expense in
connection with the issuance of our subordinated convertible
debentures in the first three months of 2001 compared to
$2,462,500 for the same period in 2000. The amount decreased
primarily because we issued fewer debentures this year
compared to last year.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(A) Exhibits
(B) Reports on Form 8-K
A report on form 8-K filed March 12, 2001 for the event dated
March 12, 2001. The items listed were Item 5, Other Events,
and Item 7(c), Exhibits.
A report on form 8-K filed March 15, 2001 for the event dated
March 15, 2001. The items listed were Item 5, Other Events,
and Item 7(c), Exhibits.
A report on form 8-K filed March 23, 2001 for the event dated
March 22, 2001. The items listed were Item 5, Other Events,
and Item 7(c), Exhibits.
A report on form 8-K filed March 27, 2001 for the event dated
March 27, 2001. The items listed were Item 5, Other Events,
and Item 7(c), Exhibits.
A report on form 8-K filed April 30, 2001 for the event dated
April 26, 2001. The items listed were Item 5, Other Events,
and Item 7(c), Exhibits.
A report on form 8-K filed May 2, 2001 for the event dated May
1, 2001. The items listed were Item 5, Other Events, and Item
7(c), Exhibits.
A report on form 8-K filed May 10, 2001 for the event dated
May 4, 2001. The items listed were Item 5, Other Events, and
Item 7(c), Exhibits.
A report on form 8-K filed May 10, 2001 for the event dated
May 9, 2001. The items listed were Item 5, Other Events, and
Item 7(c), Exhibits.
SIGNATURES
Pursuant to the requirements of the Securities
Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned
thereunto duly authorized on this 14th day of November 2000.
BICO, INC.
By /s/ Fred E. Cooper
Fred E. Cooper
CEO and Director
By /s/ Michael P. Thompson
(Principal Financial
Officer and Principal
Accounting Officer)